Stocks, euro slump on European debt woes (AP)
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LONDON – Stocks and the euro slid Friday as investors fretted over a report suggesting Portugal's partners in the European Union were urging the country to seek aid to prevent a sustained attack from bond market speculators.
The report from FT Deutscheland, which cites unnamed European Central Bank officials, was denied by the European Commission, the ECB and the German government. It comes after indications the EU is willing to boost the size of its financial backstop facility and that officials in Dublin are considering forcing Irish bank bondholders to take a hit in the country's rescue plan.
Germany and France have meanwhile said they would like faster progress in solving the debt crisis.
With so much uncertainty surrounding Europe's response to its continuing debt crisis, sentiment in the markets took a turn for the worse.
"This confusing 'pea-soup' of indecision, vacillation and disunity by the EU is beginning to create unnecessarily seismic waves of fear in international bond and money markets," said David Buik, markets analyst at BGC Partners.
In Europe, the FTSE 100 index of leading British shares was down 89.54 points, or 1.6 percent, at 5,609.39 while Germany's DAX fell 92.10 points, or 1.3 percent, to 6,787.56. The CAC-40 in France was 64.69 points, or 1.7 percent, lower at 3,695.73.
Wall Street was poised to open lower on its return from the Thanksgiving break — Dow futures were down 90 points, or 0.8 percent, at 11,065 while the broader Standard & Poor's 500 futures fell 15.10 points, or 1.3 percent, to 1,184.30. U.S. markets will be open only for a half day.
Stocks weren't the only financial assets feeling the heat Friday. The euro was down another 0.8 percent on the day at $1.3241, just above its earlier fresh two-month low of $1.3199.
Meanwhile, the cost of borrowing for the countries at the epicenter of Europe's debt crisis ratcheted up again, in a fresh sign that Ireland's request for a massive bailout last weekend has done nothing to ease fears that another country, possibly Portugal, or more dangerously Spain, will be the next victim.
The prevailing view in the markets is that Europe may be able to support Portugal but that a bailout of Spain would test the limits of the existing bailout fund, putting the euro project itself in jeopardy if governments don't put up more cash. Spain accounts for around 10 percent of the eurozone economy, in contrast with the other three countries, which account for around 2 percent each.
Spain's yield on its ten-year bond yields rose 0.05 percentage point to 5.22 percent, while Portugal's remained elevated just above 7 percent.
Portugal was in focus Friday as its Parliament approved a plan to hike taxes and cut salaries and welfare benefits next year. The minority government insists it won't need financial rescue, saying the austerity measures will restore fiscal health.
Investors are clearly not so confident.
"There has been no respite this week for the eurozone as the financial markets remain unconvinced about the future viability of monetary union in its current format," said Neil MacKinnon, global macro strategist at VTB Capital. "There is an uncomfortable brew of growth-deadening fiscal contraction that dents economic growth, which is actually worsening the ability of these economies to bring their government's debt dynamics back onto a sustainable basis."
As if Europe's debt crisis wasn't enough, tensions on the Korean peninsula ratcheted up again after fresh artillery fire was heard hours after North Korea warned it was on the brink of war.
The current bout of unease started on Tuesday when four South Koreans were killed after North Korea unleashed a brief hail of artillery against the small South Korean island of Yeonpyeong.
With this geopolitical tension rising, the dollar garnered strength thanks to its perceived status as a safe haven asset — it was up 0.3 percent at 83.85 yen and 0.5 percent firmer against the British pound, at $1.5680.
Earlier in Asia, worries about an escalation between the Koreas weighed heavily on stocks, with Japan's Nikkei 225 stock average closing down 0.4 percent to close at 10,039.56 and South Korea's Kospi 1.3 percent lower at 1,901.80.
Hong Kong's Hang Seng shed 0.8 percent to 22,877.25 but Australia's S&P/ASX 200 bucked the trend, adding 0.1 percent to 4,598.30.
Chinese shares fell amid worries over tightening of monetary policy. The benchmark Shanghai Composite Index declined 0.9 percent to 2,871.70, while the Shenzhen Composite Index for China's smaller, second exchange edged 0.4 percent lower to 1,332.90.
In the oil markets, benchmark oil for January delivery was down 85 cents to $83.01 a barrel in electronic trading on the New York Mercantile Exchange.
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Associated Press writer Pamela Sampson in Bangkok contributed to this report.
